U.S. strategy to free European energy markets from Russia’s grip taking shape

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Natural gas from U.S. shale fields is emerging as an important geopolitical tool as the United States and its allies seek to end the stranglehold Russia has long had on natural gas supplies on which Europe depends, the State Department’s top energy official said in an interview.

Plans to build liquefied natural gas terminals and a pipeline to transport the energy across several European countries could open new markets for U.S. natural gas producers and exporters that plan to ship LNG out of Freeport and Corpus Christi by the end of the decade. Houston’s Cheniere Energy is already shipping LNG internationally, including to Europe.

But the move to diversify Europe’s supplies of natural gas isn’t about finding new markets for U.S. companies, but rather to offset the influence of a newly aggressive Russia, said Amos Hochstein, the U.S. State Department’s special envoy and coordinator for international energy affairs. Russia has shown it is willing to use its energy as a weapon; following Russia’s invasion of the Crimea, a former region of Ukraine, and the international condemnation of the action, the government of President Vladimir Putin moved in 2014 to temporarily cut off gas supplies to large swaths of Europe.

“It’s about freeing countries from dependency,” Hochstein said of the role of U.S. natural gas, adding that when Russia “looks at the United States beginning the process of becoming one the largest LNG exporters in the world, they’re worried about losing their monopoly.”

But Russia, which has dominated Europe’s gas market for decades, is working to strengthen its monopoly. Russia plans to build a disputed pipeline called Nord Stream 2 that would allow it to transport gas to Europe without using a pipeline that runs through Ukraine, whose pro-Western government is engaged in territorial disputes with Russia.

Such a move would divert about $2 billion in annual revenues from Ukraine’s fragile economy. It’s a maneuver Hochstein said can only be interpreted as a hostile act toward Ukraine, which has long been part of Russia’s pipeline route to the rest of the continent.

“Hands down, this is a dangerous project for Europe, and I use that word carefully,” he said. It would “redraw a Cold War line in Europe along economic lines.”

But last week, the first signs of legal resistance to the pipeline project emerged. Poland had signaled it would block a group of local companies – Polish subsidiaries of large oil companies like Royal Dutch Shell – from forming a consortium in the country to help build and run the Russian pipeline system. The companies withdrew an application to form the consortium last week.

Several European leaders also have voiced opposition to the proposed pipeline, Hochstein said, but this was the first time the resistance actually had any real effect. It could be the first in a series of setbacks for Russia.

The United States and the European Union, meanwhile, are pursuing plans for two floating liquefied natural gas terminals, one off Greece and another in the Adriatic Sea near Croatia, as well as a major pipeline that would run through Azerbaijan, Georgia, Turkey, Greece, Albania, Italy and Bulgaria.

If all goes to plan, those three projects will eventually let American shale gas and energy from other producers into the region. At the moment, Eastern Europe lacks the infrastructure to import gas from anywhere else but Russia.

The projects, Hochstein said, will ensure Russia can’t use its monopoly as a political weapon, once they’re built.

Greece and Bulgaria inked a final investment decision on the pipeline in December, and construction is set to begin in the fourth quarter of this year. One of the floating LNG projects, run by a Greek energy company and a counterpart in Bulgaria, will take shape after a team from both companies studies how to assemble the facility and makes a proposal to the Bulgarian government.

The Croatian floating LNG import terminal, in the Adriatic Sea, could start up by 2018, but it has yet to be given a final green light.